The Central Bank of Nigeria (CBN) launched the Micro Small and Medium Enterprises Development Fund (MSMEDF) on August 15, 2013, with a share capital of N220 billion. The Fund was established in recognition of the significant contributions of the MSME sub-sector to the economy and the existing huge financing gap.
The International Finance Corporation (IFC) estimates that 65 million firms, or 40 percent of formal micro, small and medium enterprises in developing countries, have an unmet financing need of $5.2 trillion every year, which is equivalent to 1.4 times the current level of the global MSME lending.
As of May 28, 2021, the sum of N85.190 billion has been disbursed under Micro Small and Medium Enterprises Development Fund to 746 beneficiaries.
It implies that close to N135 billion of the MSMED fund is still available for operators in the sub-sector to access to expand their businesses.
Giving his thought on the disbursement so far, Uche Uwaleke, professor of capital market and president, Capital Market Academics of Nigeria, said there is still scope to scale up the disbursements especially against the backdrop of the need to support economic recovery efforts post-pandemic.
However, he said it must be borne in mind that the disbursements are concessional credit facilities meant to be repaid by the beneficiaries and not outright grant which, the CBN is in no position to make.
By implication, before any fund is disbursed, the CBN is expected to ensure that proper credit appraisal processes must have been carried out by participating financial institutions.
“In my view, the need to implement conditions precedent before any funds are disbursed largely explains the pace and current state of disbursement.
“It goes without saying that if the objectives of the MSMEs development fund are to be achieved, then the CBN must continue to not only monitor the disbursements to ensure that they get to the real beneficiaries but also periodically evaluate its performance against stated objectives, he said.
Indeed, for interventions such as the MSMEs development fund, it is not how much but how well that matters, Uwaleke said.
Beyond its intervention programs, the CBN has continued to encourage banks and financial institutions to lend from their balance sheet in order to support the growth of critical sectors of the economy.
Such sectors include Agriculture, Micro, Small and Medium Enterprises (MSMEs) and the Real Estate Sector.
Greater emphasis on improving consumer spending and business investment by MSMEs is critical to sustainable double-digit growth of the Nigerian economy, according to Godwin Emefiele, governor of the CBN.
According to the CBN, 10 percent of the Fund has been devoted to developmental objectives such grants, capacity building and administrative costs while 90 percent commercial component has been released to Participating Financial Institutions(PFIs) at 2 percent for on-lending to MSMEs at a maximum interest rate of 9 percent per annum.
Eligible activities to be financed include agricultural value chain, services, cottage industries, artisans, trade and commerce and any income-generating business as may be prescribed by the CBN from time to time.
The broad objective of the Fund is to channel low-interest funds to the MSME sub-sector of the Nigerian economy through PFIs to: enhance access by MSMEs to financial services; Increase productivity and output of microenterprises; Increase employment and create wealth, and engender inclusive growth.
The regulator last month revealed that 585,593 beneficiaries have so far received N462.722 billion as of May 28, 2021, from its various intervention schemes to support MSMEs and individuals.
Last week, the CBN explained that its interventions are born out of market failure and other critical issues within the nation’s economic space.
Currently, the CBN has 37 intervention funds targeted at stimulating the economy and addressing the issue of unemployment.
“What we need to understand about CBN’s interventions is that it is purpose-driven, it is functionally based and it is also well thought out,” Osita Nwanisobi, acting director, corporate communications department, CBN said at the CBN’s fair held virtually in Lagos and Abeokuta in Ogun State.
He said interventions like the refinancing restructuring facility, or the Power Airline Intervention (PAIF), came in the aftermath of the global financial crisis.
“It was part of our quantitative easing. After the global financial crisis, the banks were stabilised. Stabilizing the banks we had another issue and that became unemployment.
“As someone who has the vision of building a people’s centred Central Bank, Emefiele said we must tackle unemployment. So you saw the Real Sector Support Facility (RSSF), the whole essence is to stimulate the real sector,” he said.
Nwanisobi explained that Agri-Business/Small and Medium Enterprise Investment Scheme (AGSMEIS), speaks to the young generation who don’t have the collateral, who don’t have what it takes to access the normal traditional loan from the bank. When they come to NIRSAL microfinance banks, nobody asks them for collateral.
“All we say is that for you to access this intervention fund you need to have gone through vocational entrepreneurship education and the essence is to enable them to understand the norms of establishing and handling a business so that when they start they will understand that the business is totally for them,” he said.
He said 70 percent of the loans will be used to procure equipment while the remaining 30 percent would be given to people as working capital to enable them to start up something.
The CBN has disbursed about N700 billion in various agricultural programmes and as of January 2021, the CBN had disbursed N554.61 billion to 2,849,490 farmers to boost food security under its Anchor Borrowers’ Programme alone since 2015.
Under the N1 trillion real sector fund, a total of 234 real sector projects valued at N857. 644 billion was approved and disbursed from November 2018 till May 28.
Of the total 234 projects, 155 real sector projects valued at N615 billion was financed from January 2020 till May 28, 2021, to 78 manufacturing projects – N256 billion; 36 agricultural projects – N84. 481 billion; 30 Service projects – N191 billion; and 11 Mining Projects – N83.5 billion.
Data from the CBN showed that as of January 2021 till date, N157.517 billion have been disbursed for 29 real sector projects under the Real Sector Support Facility- Differentiated Cash Reserve Requirement (RSSF-DCRR).
According to the World Bank Group, Small and Medium Enterprises (SMEs) play a major role in most economies, particularly in developing countries.
SMEs account for the majority of businesses worldwide and are important contributors to job creation and global economic development. They represent about 90 percent of businesses and more than 50 percent of employment worldwide. Formal SMEs contribute up to 40 percent of national income (GDP) in emerging economies. These numbers are significantly higher when informal SMEs are included.
The World Bank’s estimates revealed that 600 million jobs will be needed by 2030 to absorb the growing global workforce, which makes SME development a high priority for many governments around the world.
In emerging markets, most formal jobs are generated by SMEs, which create 7 out of 10 jobs. However, access to finance is a key constraint to SME growth, it is the second most cited obstacle facing SMEs to grow their businesses in emerging markets and developing countries.
SMEs are less likely to be able to obtain bank loans than large firms; instead, they rely on internal funds, or cash from friends and family, to launch and initially run their enterprises.